If the government estimates that the marginal cost of building a bridge is $100 million,while the marginal benefit is $150 million,the marginal principle dictates that the government should
A) build the bridge.
B) never build the bridge.
C) wait until the marginal cost of building the bridge rises to above $150 million before building the bridge.
D) wait until the marginal benefit of building the bridge drops to below $100 million before building the bridge.

Question

Quizplus · Accepted Answer

According to the marginal principle, the decision should be based on comparing the marginal benefit and the marginal cost. In this case, the marginal benefit of building the bridge is $150 million, which is greater than the marginal cost of $100 million. Therefore, the government should build the bridge. Waiting for the marginal cost to rise above the marginal benefit or for the marginal benefit to drop below the marginal cost would not be optimal as it would result in a missed opportunity to provide a net gain of $50 million to society. Therefore, the best choice is to build the bridge.

If the Government Estimates That the Marginal Cost of Building